Japan Top 30 – Part 2

It was a year of extremes for Japanese-owned businesses in Hawaii

September, 2002

The 30 largest Japanese-owned companies in Hawaii last year had combined gross annual sales of $2.85 billion, roughly 9 percent lower than the previous year. For some, 2001 was the year for growth, and for others, 2001 was the year of divestiture and depression.

Take Jalpak International, for example. The tour operator and travel agency experienced a 24.4 percent plunge in sales over a one-year period. Annual sales also dropped (23.8 percent) for House Foods Hawaii Corp., a distributor of ice creams and beverages. Sales for Obayashi Hawaii Corp., a general contractor and real-estate developer, fell 20.7 percent. These three were the worst performers among the 18 companies that had negative sales last year.

No surprise, really. Back home, Japan continues to fight its third recession in 10 years. The country’s politicians are slow to agree on economic reforms. And Japanese corporations still owe banks trillions of yen. According to a Bank of Japan report, Japanese executives expect the dollar to average 126.23 yen between March and September 2002, and 125.73 yen until March 2003. At the time of this writing in late July, the yen was almost 120 yen to the dollar. Any higher, and that would have been bad for Hawaii’s tourism industry.

The economic malaise has had a ripple effect on Hawaii’s real-estate industry. Japanese companies in 2001 divested more than $678 million of commercial properties in Hawaii, more than half of the total number of commercial transactions in the state, according to a market report by Colliers Monroe Friedlander Inc.

Japanese companies owned the three largest commercial buildings sold in Hawaii. Mitsui Fudosan on Oct. 1 sold the 478,376-square-foot Amfac Center for $95 million, roughly 33 percent lower than its original purchase price. Pioneer Plaza was bought Sept. 1 for $43 million at $147 per square foot. Wang International Kabushiki was the previous owner of that building. A&B Properties earlier in the year purchased the 123,600-square-foot Pacific Guardian Tower for $22.6 million. Colliers estimates that many of these properties were sold at less than 70 percent of their original purchases, reflecting a net loss of more than $250 million.

But there’s good news. A handful of Top 30 companies boasted big bumps in 2001 sales: 7-Eleven Hawaii Inc. (21 percent increase); Sony Hawaii Co. (16.3 percent increase) and Pacific Guardian Life Insurance Co. Ltd. (15.6 percent increase). All in all, eight companies on the list had positive sales; two companies had nil growth. There also were two new companies that ranked in the Top 30 list for the first time. They were Kajima Construction Services and Nikken Corp., which grossed $16 million and $34.9 million in annual sales.

Nikken Corp., whose Japanese parent company is Azel Corp., operates the Bay Club at Waikoloa Beach Resort on the Big Island. The 172-unit property was built in the early 1990s as a high-end condominium project and in 1994 became a time-share operation. The conversion, says Nikken’s controller Grant Ito, was a smart move. “A lot of people, especially after Sept. 11, reassessed their priorities and now spend more vacation time with their families,” he says. So much so that the company plans to break ground next year on a 90-unit condominium, adjacent to the existing Bay Club. Nikken expects to sell all units in four-and-1/2 years and may launch a subsidiary company to handle financing.

Kajima Construction also is in growth mode. Kajima U.S.A. Inc. – the American subsidiary of Kajima Construction’s parent company in Japan—last May agreed to purchase Hawaiian Dredging Co., from California-based Dillingham Construction for an undisclosed price. Hawaiian Dredging is the state’s oldest construction company (founded 1902). Prior to the purchase agreement, Kajima and Hawaiian Dredging jointly worked on a number of projects, including the Westin Kaanapali Ocean Resort Villas and Kamehameha Schools on the Big Island.

There will be more Japanese investments in Hawaii over the next few years, say industry leaders. But these investments will be on a smaller scale. “Japanese investors today are more careful. They do their research,” says Chaney Brooks & Co. Senior Vice President Steve Sombrero, who specializes in Japan operations. Lately, Sombrero’s clients have been retail and service-oriented companies with plans to open branches in Hawaii. “Unlike their predecessors, they know they don’t ask their real estate brokers for legal questions, and they know they don’t ask their attorneys for real-estate advice. Their predecessors asked their attorneys for everything, but now they ask the right questions to the right professionals,” he says. Perhaps, something good will come out of Japan’s financial woes.